Opportunity
Create a leader in the China mattress market across online and offline channels, as well as via cross-selling.
Approach
Market the brand to establish a differentiated position, and build a strong team to outperform in a distribution-focused market, while repositioning the company from a single-branded business to a multi-brand premium mattress platform.
Impact
The business experienced 10x growth – half organic and half inorganic. Its footprint increased from 300 branded stores to more than 2,300 branded stores, in over 600 cities, across mainland China and Hong Kong.
Turning a dream into reality
In 2013, Advent’s consumer team established a dedicated ‘sourcing cell’ focused on the mattress subsector. When China overtook the US to become the world’s largest mattress market in 2015, we quickly saw an opportunity to apply knowledge garnered from our global consumer team, as well as our local market expertise, to our advantage.
This was a rapidly growing market as locally, mattress penetration remained low, with many Chinese people still using traditional mats and woven beds. With more and more Chinese consumers choosing to spend money on mattresses, we propelled the growth of a premium mattress manufacturer, transforming it from a single to a multi-brand platform.
Through our detailed sourcing efforts, we identified King Koil China – the country’s exclusive licensee of American mattress business King Koil and several other international brands. Although it already had a financial sponsor, our teams regularly monitored the company, viewing it as a prime opportunity.
When the sponsor began a sales process, the team acted swiftly, leveraging our extensive sector knowledge and global resources, to acquire King Koil in 2016. During the acquisition process, the company’s founder recognized our ability to provide significant value.
“Advent allowed us to substantially expand our outlet and franchisee partners, as well as top-grade manufacturing plants, increase our footprint and market share, and propel us to be one of the fastest-growing consumer brands in China.”
Edward Wu
CEO, AI Dream
Making the bed
In 2018, we merged King Koil China and Serta China, forming the AI Dream platform and consolidating operations in mainland China and Hong Kong.
The following year, the new platform acquired the China license of Ruf Betten, a German furniture brand. Serta China and King Koil China continued to expand their footprint, adding around 500 stores nationwide during the same year. They achieved this growth through targeted franchise partner selection and enhancing the company’s relationships with national and regional furniture malls.
We invested heavily in product innovation as part of our value creation plan. AI Dream pioneered smart sleep products (iComfort®) in 2019 and introduced marketing initiatives to strengthen the brand. In partnership with the management team, we successfully relocated operations to a new and modernized plant in Shanghai, which led to increased automation, improved supply chain management, and higher productivity.
In addition, we utilized our global consumer and mattress experience to revolutionize operations and grow the business. We achieved savings of more than ¥80 million (USD $12 million) from 2019 to 2021 through improving the materials procurement process, implementing lean production practices, and optimizing capacity allocation, equaling to 150 bps margin increase.
Reawakening the market
In early 2020, China was placed under lockdown due to the spread of Covid-19. This period was challenging, as the business primarily operated through offline, in-store channels – consumers typically wanted to test a mattress before purchasing in furniture malls.
AI Dream was negatively impacted by forced store closures in the first quarter of 2020. However, thanks to the company’s robust brand awareness and presence across multiple channels, it was able to make a strong recovery in the second half of the year. The company achieved 98% revenue recovery and 5% EBITDA growth compared to 2019 levels, despite the challenges posed by COVID-19.
During this period, we focused on strengthening our omnichannel presence and doubled down on AI Dream’s digital strategy, to preempt and respond to a growing market shift to online mattress shopping as the pandemic continued.
After coming out of lockdown in 2020, we took a bold approach. Together with management, we launched a compelling marketing campaign to entice people back to our stores, despite our peers taking a more conservative stance. This approach paid off, and we saw an increase in in-person visits. We ultimately increased our number of stores from 1,700 at the end of 2018 to over 2,300 at the end of 2020, a seven times increase from the 300 stores that King Koil operated at the time of Advent’s investment in 2016.
Growth accelerated and resulted in a stronger performance in 2021, driven by both offline and online sales. In the wake of the pandemic, many competitors downsized, while we dared to dream big, acquiring over 100 prime store locations.
Springing into action
Advent relied on top-level advisors and talents from leading Chinese consumer companies and our Portfolio Support Group to provide AI Dream with strategic advice on supply chain logistics, marketing, branding, and human resources. They included Gary Chu, a former President of General Mills Greater China; Phillip Jiang, previously of Yoplait China who was named Finance Director; and Frank Wang, who had experience working at Burger King China and was appointed Chief Marketing Officer.
Chu’s extensive experience in fast-moving consumer goods (FMCG) was particularly valuable in supporting the AI Dream management team. We observed that many competitors in China focused solely on distribution. By bringing in an Operating Partner with FMCG experience, we could position the brand to standout in the market and create sustainable growth.
Under our ownership, a transformational moment was the merger of Serta China and King Koil China, which grew the business threefold, and the strategic repositioning that followed.
“The team’s expertise in the sector set us apart – our knowledge demonstrated the value we could bring, which enabled us to establish a trust-based partnership.”
Andrew Li
Managing Director, Advent
In addition, AI Dream ultimately increased its physical footprint from 300 branded stores to over 2,300 branded stores in more than 600 cities in mainland China and Hong Kong. We evaluated various exit strategies and opted to pursue a dual-track approach, focusing on both strategic and financial buyers, which ultimately led to a sale to an Asia-based sponsor, Hill House, in August 2021.
AI Dream embodies the Advent investment philosophy. We accelerated its growth and repositioned it from a single-branded business to a multi-brand premium mattress platform. This was achieved by transforming AI Dream into a leading bedroom products and furniture provider – seizing cross-selling opportunities through the company’s robust network of franchisees. Our strategy was driven by the understanding that retailers want to sell mattresses and encourage customers to purchase complementary products.
